MUMBAI – The Middle Eastern market, which has seen sustained interest in large denomination bullion bars from high-net-worth individuals, has a new ally. Heavy buying from expatriates from the Asian subcontinent, notably India, has spurred sales of the precious metal.
An important consumer segment in the Middle Eastern gold market, especially Dubai, are expatriate Indian people who live in the United Arab Emirates as well as others from India who are touring the region.
Gold souks and bourses in the Middle East are now targeting non-resident Indians (NRIs) and Indian expats by offering them loans and discount schemes to feed their gold bar frenzy.
Traders believe that Indian consumers have helped pull up sales in gold bars and coins in the Middle East, which has seen 10% growth in bars and coins in the first quarter of 2011, as against a 16% slump in gold jewellery sales during the same period.
Saudi Arabia has also seen 6% rise in demand for bars and coin, even as jewellery demand has fallen by 19%. UAE, on the other hand, registered 21% growth in investment in bars and coins, while jewellery demand grew by 5%, according to a report by the World Gold Council.
“The numbers have a story to tell. It is not just rich customers in Dubai or Oman who are doing the buying. Indian expatriates in the UAE have been rushing to stores to buy gold on several occasions and especially during religious and festival times,” said Vijayan Shekhar, bullion analyst at a foreign brokerage house in Mumbai.
Jimshad Bin Abdullah, an official at Malabar Gold said that long queues had appeared outside his store in Bur Dubai, even before it opened at 11 am. The occasion – the Akshaya Tritiya festival. Though the crowds had dispersed during the prayer break that day, by the evening the customers were thronging the place once again, he added.
There has also been a massive rise in volumes on the Dubai Gold and Commodity Exchange. On May 9, the exchange announced that the volume of traded commodity contracts had increased by 111% year-over-year in April.
The trade volume soared to 227,421 contracts valued at $11.4 billion. “This is clearly indicative of the growing importance of the Asian markets, since many of the investors were of Indian origin,” said bullion analyst Prathimesh Shah.
AFFINITY FOR COINS & BARS
Indians have an affinity for gold bars and coins. According to reports, Indian investors bought gold bars and coins to the extent of 160 tonnes in the nine months ended December 2010, as against 148 tonnes in the same period of the previous year.
As per data, consumer demand of jewellery grew by a mere 7% to 556.9 tonnes from 521.3 tonnes, while demand for bars and coins grew by a whopping 52%. The price of gold too has soared 25% year-on-year in the first quarter ending March 31, 2011.
Investments in bars and coins at the end of the first quarter of 2011 were at 366.4 tonnes. It was around 241 tonnes in the year-ago period. Analysts have maintained that this increase of almost 126 tonnes during the 12 months period, could have received a major boost from Indian consumers.
Jony Joseph at Joyalukkas Jewellery outlet, which has several showrooms in the Middle East and has launched several schemes to rope in the Indian customer, said that coin and bar demand in most major markets had seen a continued firm demand in 2010.
In China, he said, investment demand grew to 35% of total demand. While China Gold Corporation reported sales of 45 tonne, the ICBC bank sold 27 tonnes of the yellow metal. In the United States too, several reports have chronicled the US Mint’s inability to keep pace with the demand for gold coins.
Several banks appear to have joined the fray in ensuring that Indian expats are not left bereft of their gold-buying tendencies. The State Bank of Travancore plans to open 15 boutique gold loan branches, which can disburse loan in minutes. The bank caters to non-resident Indians (NRIs) based in Oman.
Santanu Mukherjee of the International Banking arm of State Bank of Travancore has been quoted as saying that NRI deposits constitute a sizeable portion of the bank’s deposit base. Under the bank’s Gold Pledge Loan scheme, customers can take a loan against the gold brought from a jewellery shop. While the initial investment is 30% of the gold cost, the balance will be covered by the bank in loans. The gold will be pledged with the bank during the tenure of the loan.
“NRI deposits account for 20% of our total deposits and one-third of the bank’s remittances come to Kerala,” Mukherjee said.
Incidentally, expats from Kerala regularly throng the gold souks in Dubai and Abu Dhabi, with traders insisting their favoured possessions are traditional artifacts, whether authentic or reproduction.
“The items are valued for the link that connects them to the cultural community they have left behind. Gold is a valued possession according to its significant role in Indian culture,” said gold trader, Vijayan Menon.
Menon, who owns a retail outfilt at the Gold Souk in Dubai, said there were many benefits for Indian consumers. “Indian customers can get real gold at an extremely low price. The reason gold souks can afford to sell gold at such a low price is that they do not have to pay taxes and duty. The price the customer pays for the gold and the jewellery will not depend on the pattern, like it does in India, but rather on the weight of the gold,” said Menon.
Gold is purchased by many Indian expats with the intention that it will be passed on to the children, and daughters in particular, at some future date, he added.
World Gold Council data showed that in the United Arab Emirates, the jewellery sector experienced a strong rebound in the second half of 2010, as consumer confidence returned to the local economy. Traders said the 22-carat segment remained the category leader thanks to heavy buying from expatriates from the Asian subcontinent.